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Rating Update:

MOODY'S DOWNGRADES TO A2 FROM A1 THE GENERAL OBLIGATION RATING FOR WINTERSET COMMUNITY SCHOOL DISTRICT (IA)

07 Sep 2011

RATING DOWNGRADE AFFECTS $18 MILLION OF OUTSTANDING DEBT

Primary & Secondary Education
IA

Opinion

NEW YORK, Sep 7, 2011 -- Moody's Investors Service has downgraded to A2 from A1 the rating on Winterset Community School District (IA) general obligation unlimited (GOULT) tax pledge, affecting $18 million of outstanding debt.

SUMMARY RATINGS RATIONALE

The outstanding bonds are secured by the district's general obligation unlimited tax pledge. The downgrade to the A2 rating reflects the district's narrow although improving financial position with the expectation the district's General Fund reserves will remain deficit at the end of fiscal 2011. The rating also incorporates the district's moderately-sized tax base favorably located 35 miles southwest of Des Moines (general obligation rated Aa1); and elevated debt burden with below above-average principal amortization.

STRENGTHS

- Socioeconomic characteristics above state and national medians

- Revenue raising flexibility through a board approved cash reserve levy

CHALLENGES

- Financial and economic stresses faced by the State of Iowa pushed down to school sector

DETAILED CREDIT DISCUSSION

FINANCIAL OPERATIONS CHALLENGED DUE TO LIMITED GENERAL FUND RESERVES

The district's financial operations are expected to remain pressured for the near to medium term given the ongoing deficit balance in district's General Fund and dependence on significant expenditure reductions and/or revenue enhancements for balanced operations going forward. The district has been experiencing consecutive operating shortfalls in its General Fund between fiscal 2007 and fiscal 2010. The primary driver behind the recurring shortfalls has been significant increases in expenditures and the district's inability to absorb state aid cuts between. Between 2006 to 2010, the district's expenditures grew on average by 6.75% each year while enrollment has remained relatively stagnant over that period.

In January 2009 and July 2009, a new superintendent and business manager were hired. The new management team has put several financial policies into place including adoption of a balanced budget in fiscal 2010. However, mid-year cuts in state aid led to an operating shortfall of $500,000, ultimately increasing the deficit general fund balance to negative $2.1 million (-13.6% of general fund revenues) in fiscal 2010, up from negative $1.6 million (11% of general fund revenues) in fiscal 2009. Positively, management has continued to reduce expenditures in an effort to return the district to solvency. In January 2010, management eliminated $1.0 million in operating expenses by implementation of cost saving strategies including the utilization of attrition to lower payroll costs, and reductions to programs and departments. Additionally, in conjunction with the expenditure cuts, a subsequent property tax increase has resulted in an operating surplus of $1.4 million in fiscal 2011. Officials plan to keep the higher tax rate in place until the goal of maintaining 3 months of expenditures in cash and $3 million in General Fund balance is achieved over the next five years.

Officials are aware of the challenged financial position of the district and are taking many steps to restore solvency such as increasing tax rates, implementing and raising cash levies, and executing substantial expenditure cuts. Future rating reviews will incorporate the district's ability to increase reserves in line with management's cash and reserve goals.

GROWING TAX BASE BENEFITS FROM LOCATION NEAR DES MOINES

Located in Madison County, the district is approximately 283 square miles and serves mainly the cities of Winterset, Patterson and East Peru. The district's modest $650 million tax base has grown at a 7.1% average annual rate of growth for the past five years. Due to its favorable location just southwest of the city of Des Moines, Moody's expects the district's tax base to continue to grow. Des Moines, due to its strong insurance and financial sector base, lends economic diversity and stability to the region. Officials report that the northern portion of the district is experiencing development in response to the Jordan Creek Mall development that is located approximately 2 miles north of the district. The district's 2010 Census population is 8.85% higher than the 2000 Census Enrollment has also increased at an average annual rate of 0.5% from 2005 to 2010. District officials expect enrollment will continue on that trend for the next several years.

MANAGEABLE DEBT PROFILE; LIMITED FUTURE BORROWING NEEDS

The district's debt profile will likely remain manageable given limited future borrowing needs. The district's overall debt burden of 4.1% and its direct debt of 2.8% are slightly above average. Principal amortization is below average, with 50% of debt retired in ten years. District officials report no plans for additional borrowing in the near- to medium-term.

KEY STATISTICS:

2010 US Census: 5,190

Enrollment 2010: 1,713 (0.5% 5 year average annual increase)

2010 full valuation (for property tax collections in 2010): $659 million

2010 Full valuation per capita: $69,822

Madison County unemployment rate (09/09): 5.8% (6.3% state; 9.5% US)

Overall debt burden: 4.1 (2.8% direct)

Payout of principal (10 years): 50%

Fiscal 2010 General Fund balance: -$2.1 million (-13.6% of General Fund revenues)

Fiscal 2011 General Fund balance (unaudited: -$709,000 (-4.1% of General Fund revenues)

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Analysts

Xavier Smith
Analyst
Public Finance Group
Moody's Investors Service

Matthew Butler
Backup Analyst
Public Finance Group
Moody's Investors Service

Edward Damutz
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S DOWNGRADES TO A2 FROM A1 THE GENERAL OBLIGATION RATING FOR WINTERSET COMMUNITY SCHOOL DISTRICT (IA)
No Related Data.
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